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This report examines how U.S. corporate tax inversion announcements impact shareholder value. A corporate tax inversion is where a corporation moves its location of residency to a new jurisdiction with a lower tax rate than that of its original location of incorporation. Corporate operations are usually continued in the location with the higher federal effective tax rate. Since the first U.S. inversion in 1983, there have been more than 75 inversions (Marples & Gravelle, 2016). There has been growing division over the issue of whether or not inversions are acceptable as a result of the U.S. tax base deteriorating. Many politicians have been searching for ways to control the number of inversions through legislation. As a result, inversion trends have been changing due to governmental regulation, international business, and public opinion. For this analysis, data is collected on 49 corporate inversions that occur from 1983 to 2016. Event studies are conducted on individual trends to determine what types of inversions create the most value. Results indicate that pharmaceutical corporations completing merger and acquisition (M&A) inversions in Ireland after 2007 are valued the most by shareholders.
I examine the effect of administrative authority on shareholder value. Specifically, I study Treasury Regulations related to IRC ℗ʹ7874, which were intended to significantly diminish the ability of U.S. multinational companies to avoid U.S. tax through inversion. I find a negative market reaction on dates when Treasury signals it will strengthen inversion restrictions and a positive reaction when the courts overturn Treasury's attempts. Firms with high likelihood of inversion experience the strongest reaction, consistent with the market recognizing firm-level factors that make the use of this tax strategy more likely. I find that the initial notice related to the regulations elicits a stronger reaction than either the temporary or final regulations themselves. The study broadens our understanding of how shareholders react to Treasury Regulations, and how the intensity of that reaction varies along the path to enactment. It also brings some clarity to a mixed body of research regarding the economic impact of corporate inversions.
We examine a sample of corporate inversions from 1993 to 2015 by firms active in the U.S. markets and find that shareholders experience positive abnormal returns in the short-run. In the long-run, inversions have a deleterious effect on shareholder wealth. The form of the inversion and country-pair differences in geographic distance, economic development and corporate governance standards are determinants of shareholder wealth. Furthermore, we find evidence of a negative and non-linear relation between CEO total return and long-run shareholder returns.
Global investment patterns mean that effective taxation of foreign investors is of increasing importance to the economies of lower income countries. It is thus of considerable concern that the historical framework for cross-border income tax arrangements is not always well suited to allow low-income countries (LICs) effectively to generate tax revenues from profits on foreign direct investment (FDI). Several aspects of this framework contribute to the problem. This paper discusses, in particular, the likely effect of a shift by major economies from the system of worldwide corporate taxation toward a territorial system on the volume, distribution, and financing of FDI, focusing on LICs. It then empirically analyzes bilateral outbound FDI data for the UK for 2002–10 to determine whether the move to territoriality made corporations more sensitive to hostcountry statutory tax rates. Supporting evidence for this hypothesis is found for FDI financed from new equity.
Firms invert either through a pure inversion strategy or by merging with a foreign entity. We document that the impact of corporate inversions on the cost of equity is significantly different between the two strategies. We find that pure inversions increase the cost of equity by 10%, whereas inversions through mergers decrease it by 13%. Although both inversion strategies increase the inverting firm's shareholder value, inversions through mergers appear to create more value. However, before the tax reform of 2004, which eliminated the tax savings from pure inversions, most inversions were pure, whereas after the tax reform most were done through mergers. This finding suggests that the tax reform had an unintended consequence of reducing a managerial agency problem by eliminating the less beneficial inversion option.
"A book which examines how government - which is to say, all of us, acting collectively - can make our country healthier, wealthier and happier, if we put government to useful work in those areas where it most productively complements our private markets"--Provided by publisher.
Migration has become an increasingly important phenomenon for societies, especially given its highly controversial political dimension. The complexity of the migrant integration process and its many varieties present challenges to policymakers who need high-quality information on which to base decisions. Nowhere is this necessity more pressing than in the development of relevant tax rules that meet the basic requirements of efficiency and equity. Moreover, the ascent of the so-called emerging economies coupled with the stagnation of the richest economies of the world implies reform of the current competition-based international tax regime and the adoption of a more cooperative paradigm. This important and timely book, for the first time in such depth, explores such aspects of the problem as the following: - migration for tax reasons, especially corporate "inversions" (change in corporate residence for tax purposes); - tax consequences related to individuals who receive free or subsidized education in one country and profit from it in another; - taxing cross-border retirement income; and - migration-related aspects of tax preferential treatment of the elderly. With particular emphasis on the effects and opportunities created by the changing international tax regime - and with attention to the role of tax treaties and recent court cases - chapters by well known tax experts present evidence on the consequences of migration in all its facets and simulate the effects of several recently enacted and proposed changes in tax law in European countries, the United States, and other jurisdictions. The grounded propositions and recommendations offered in this deeply informed book will allow policymakers to draft tax-residence rules that minimize distortion and promote fairness. The book will also be of interest to tax law practitioners and other tax specialists, migration experts, and academics investigating one of the crucial political issues of our time.
Part of a series that presents recent research on the effects of taxation on economic performance and analyses of the effects of potential tax reforms, this volume includes: an evaluation of Medicaid in the 1980s; medical savings accounts; and implications of a broad-based consumption tax.